Difference Between Macroeconomics and Microeconomics

Posted on December 20, 2010 by Andrew Last updated on: December 20, 2010

Macroeconomics vs Microeconomics

The recent financial crisis in the world created huge losses for companies as the purchasing power of the individuals declined and inflation heightened. The world economy stumbled; especially the middle and the lower class that is the maximum population of the entire world. In inflationary conditions, it is the middle and the lower class that is the most affected as the upper class still has purchasing power to survive the conditions. This scenario was governed by the macro and micro economics where the central banks had to take huge leaps to stabilize their respective economies. Because trading between countries is an integral part of economics, the economic policies associated with the countries tend to transcend boundaries along with the products and services supplied.

Macroeconomics

Macro economics is that branch of economics that deals with the economy as a whole and the decisions revolve around indicators such as the GDP, unemployment and consumer prices indices. The output of a country, inflation, savings, unemployment, international economic policies and policies on export and import tend to govern the macroeconomics as macro refers to a larger picture and therefore takes into consideration the whole economy. Macro economic policies are used by corporations and the government at large to predict an outlook for their businesses or to find out feasibility for the survival of any new business.

Microeconomics

Microeconomics is that branch of economics that studies the nature of individuals. By individuals, the focus is more on households and their demand and supply patterns governed immensely by prevailing interest rates, the inflationary conditions of the economy and therefore their purchasing power. When the demand for a ‘basket of goods” or services increases, or the supply of such decreases, the price accordingly increases. When the demand decreases and the supply for the goods increase then the price decreases so that the quantities are sold out. This is how he demand and supply adjust in the economy.

Difference between Macro and Micro Economics

Where macro takes a holistic approach to the economy taking into consideration the policies o the other countries as well, the micro economics looks at individuals in the economy and their buying behavior. The concepts too that govern the two are different for both. Macro economics relies heavily on GDP, the unemployment rates, national income and rate of growth. The micro economics looks at individuals and how taxes, interet rates and other government regulations affect the individuals purchasing habits. This is then translated into a demand supply chart that shows the viability for entities.

Conclusion

Though the two studies are presented to affect differently, the point is that both are interdependent. The macroeconomics governs the micro as well since the individuals are part of the economy. When the policies for the macro change, this affects prices and the whole economy and therefore the purchasing power of the individuals.

Both policies provide a tool for corporations to measure their viability in an economy based on the pricing and therefore the spending power of the economy.